Dollar falls as Trump slashes trade tariffs

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The US dollar fell on Monday ahead of the inauguration of Donald Trump, after the incoming president’s officials indicated that he would not immediately initiate trade tariffs against some major partners by the largest business in the US.

The currency was down 1 percent against a basket of six peers in afternoon London trade, putting it on course for its biggest daily decline in more than five months.

The fallout came as officials in the incoming administration told reporters that Trump was willing to review trade relations with Mexico, Canada and China, but signaled that he would stop imposing new tariffs quickly.

“The dollar has rallied for four months on the assumption that the new Trump administration will begin to act when it comes to tariffs,” said Chris Turner, head of financial market research at ING. “These early reports point to a more measured approach.”

Markets have been betting since early October that Trump’s proposals for trade tariffs and tax cuts could stoke inflation, pushing the Federal Reserve to keep interest rates high for longer.

The euro and sterling leapt, adding 1.2 percent and 1.1 percent respectively – heading for their best dates since November and December 2023 respectively.

The Mexican peso added 1.2 percent. The Canadian dollar rose 0.9 percent, marking its strongest day since May 2023.

“The dollar was overpriced and has been for weeks now. A correction was coming,” said Brad Bechtel, global head of FX at Jefferies.

Wall Street is closed on Monday. US government bonds have sold off recently, partly in anticipation of the impact of interest rates on the US economy.

“One thing the FX market was expecting was more volatility,” said ING’s Turner. “And we certainly see that.”

James Nelligan, a strategist at JPMorgan, wrote on Monday that “there is no immediate rate action . . . It would be a momentary disappointment to the dollar, and understandably it’s on its knees in sympathy.”

However, he added that there is still room for “potentially aggressive charges once the audits of business relationships by government agencies have taken place”.